Assume a U.S. bank accepts deposits in dollars and made some fixed-rate loans in British pounds. Which of the following would reduce the bank's profit margin?
A)The pound appreciates against the dollar.
B)The pound depreciates against the dollar.
C)British interest rates decrease.
D)British interest rates increase.
E)British interest rates decrease AND British interest rates increase.

Question

Assume a U.S. bank accepts deposits in dollars and made some fixed-rate loans in British pounds. Which of the following would reduce the bank's profit margin?
A)The pound appreciates against the dollar.
B)The pound depreciates against the dollar.
C)British interest rates decrease.
D)British interest rates increase.
E)British interest rates decrease  AND British interest rates increase.

Quizplus · Accepted Answer

The pound appreciating against the dollar would reduce the bank's profit margin because the bank would have to pay more dollars to cover the same amount of pounds borrowed.